Investment portfolio accounting systems are systems that store, account for, and report on portfolios of investment assets and liabilities. A portfolio accounting system must track each transaction or other event that affects the value, income, or tax consequences of investments. Portfolio accounting systems are distinguished from portfolio management systems in that every accounting consequence is tracked. In portfolio management systems, the focus is on investment performance and security positions. Some accounting information is generated coincidentally with performance tracking. However, in general, this information must be supplemented by the work of accountants to meet accounting requirements.
Creating and maintaining a portfolio accounting system is more difficult in many ways than ordinary business accounting systems. Large investment portfolios can have many thousands of transactions per day. Each purchase or sale of a security has tax consequences that must be tracked. The “inventory” of securities can experience a number of predictable and unpredictable events, such as dividends, interest coupons, splits, exchanges, defaults, calls, puts, amortization, accretion, and the like. The investment community is constantly inventing new kinds of securities with new kinds of events. Examples of recently developed investment vehicles include collateralized mortgage bonds, dual currency bonds, swaps, forwards, amortizing swaps, and contingent value rights. Tax and accounting rules often change, particularly with new types of investments.
Prior portfolio accounting systems include specific program subroutines to handle each type of security and each type of transaction. By the time these programs are written, they are often obsolete. They also commit their users to particular accounting policies when the rules may be subject to differing interpretations. Any change to these programs involves the intervention of computer professionals. This usually involves a large time and expense outlay.
Therefore, what is needed is a portfolio accounting system and method which is readily adaptable to changing circumstances, and that is easily adaptable by accounting professionals without assistance from programming professionals.